Second in a series.
Dec. 13, 2021, © Leeham News: When EADS, the forerunner of Airbus Group, pondered whether to proceed on its own to compete with the A330 MRTT for the US Air Force’s aerial tanker competition, the factors went well beyond the tanker.
Plans for the Airbus A320 program, production ramp-up, and potentially a US final assembly line also were weighed.
“An assessment was made as a consequence of having been through the competition once before and learning from that,” said Sean O’Keefe. O’Keefe was CEO of EADS North America at the time.
Then, O’Keefe said in an interview with LNA in October, was the realization of what Airbus was doing to really ramp up production on A320s. Airbus had a plethora of things to figure out what that would take.
“We had been rocking along steady-state, producing 400 A320s a year up until that point. Then it suddenly went up dramatically. We had looked at what that projection would take and how we’d get there. What kind of learning curves we might derive from that? We considered all the other supply chain stuff and everything and came out with something that was a good 10% to 15% less” than the Northrop-EADS offering if EADS went ahead alone.
“What we didn’t expect was Boeing would be substantially less,” O’Keefe recalled.
The requirements set by the Air Force called for a Technically Acceptable, Lowest Price competition, or TALP.
Under TALP, none of the A330 MRTT’s capabilities beyond the baseline would be credited unless the bid price between Boeing and EADS was within 1% of each other. The baseline set was the performance of the aging Boeing KC-135 tanker.
Both offers by EADS and Boeing exceeded the KC-135 baseline. The scoring was done on a Pass-Fail approach.
Projected operating costs over a 40-year life span were also considered. The larger, heaving MRTT cost more to operate than the Boeing airplane, based on the 767-200ER. The cost delta on a single trip mission wasn’t as wide as Boeing claimed, but over 40 years, the numbers added up, significantly.
Still, it all came down to price. Boeing bid $167m. EADS bid more than $180m—well above the 1% trigger point to allow the MRTT to get extra credit.
“Boeing came in with a substantially lower production cost,” O’Keefe said. The Boeing tanker was a paper airplane compared with the operating MRTT. So, EADS estimated that developing the tanker would cost Boeing $3bn to $3.5bn. We were at around $1.5bn, in that range, at the most for development.”
“That was completely rational given the fact that Boeing would develop the 767 into a tanker,” O’Keefe said. EADS, on the other hand, already incurred those costs. “We were going to roll it right off and say, ‘That’s how we’ll build it.’ It’ll look much the same and operate much in the same manner as an MRTT.”
But since the USAF now pursued a TALP approach, EAD and Airbus still had to shave costs.
The MRTT airplane is what it is, so there was little Airbus could do to cut costs on the plane itself. Having been through the previous competition, however, shifted EADS/Airbus thinking about its overarching approach.
“Now, we said let’s do this in a way that really does recognize what we think we can get out of a lot of knowledge now having lived through the prior experience,” O’Keefe said. “I can’t understate the value of the concurrent decisions being made internally on the A320 production rate. That was a big, big deal because we’ve been debating that on a commercial basis exclusively for about the same period in which we were heavily engaged in preparing the new proposal after it had been overturned. We learned a hell of a lot out of what the commercial team was really examining and really wrestling with of breaking out of this fixed production pattern on the commercial end for 320s.”
O’Keefe said Airbus came to the realization that there was no reason why Airbus couldn’t replicate that same learning curve of focus for the MRTT.
“It was really a lot of hand-in-glove with some of the commercial applications and commercial experiences that have been undergone at exactly the same period that gave us the confidence of saying, ‘Yes, we can definitely shave 10% to 15% off the margin relative to what we had originally offered now that we know what we know and we can see what we’re doing,’” O’Keefe said. “We’ve already had another 18 months’ worth of development time that’s already been invested in MRTT anyway. Putting all that together, it turned out to be something that we said, ‘Okay, even with that, this is still a long shot.’”
Next: What were the odds?
My book, Air Wars, The Global Combat Between Airbus and Boeing, recounts the bitter battle between Airbus and Boeing to win the contract for the Air Force’s KC-X aerial refueling tanker. It also goes into the ramifications of the original tanker scandal at Boeing and subsequent impacts on other aspects at Boeing Commercial Airplanes. Some excerpts:
Boeing’s tanker scandal of the early 2000s led to changes with the chief executive officer that had ramifications for the development of the 787. The competition to win the contract to replace the aging fleet of USAF KC-135s dragged on for nearly 10 years—and resulted in billions of dollars in write-offs from the extraordinary low-bid contract awarded Boeing.
The tanker deal was agreed to in May 2003. By the following September, Arizona Sen. John McCain, a self-proclaimed watchdog of government waste, scrutinized the transaction as too costly to the government. The $26 billion deal equated to a lease of $260 million per airplane, compared with a purchase price of $150 million. McCain thought the deal was a bad one,
way too expensive, a bail-out for Boeing post-9/11 (arguable, but a stretch) and smacked of illegality.
The senator waged a dogged campaign against the Boeing deal throughout 2004. In November, McCain entered a statement into the Congressional Record eviscerating Boeing, the USAF and the Pentagon. “The rider was in fact the result of an aggressive behind-the-scenes effort by The Boeing Company, with considerable assistance from senior USAF procurement official Darleen Druyun and others,” McCain said. “Through the hearings and investigations that followed, we unearthed a crushing body of evidence on how much a folly the proposal actually was.” He also accused the parties of a host of improprieties and of conspiring to discredit him. McCain’s statement was nearly 4,500 words or nine pages long.
By December, the USAF froze action.